Creating Value From Every Visit

BRITISH ONLINE RETAILERS MISSING OUT ON £1 BILLION IN ADVERTISING REVENUES

British online retailers are missing out on an estimated £1 billion worth of advertising revenues by choosing to not sell advertising space on their own websites, according to new research published today by OC&C Strategy Consultants.

The Creating Value from Every Visit report has revealed that the practice is well established in the US, where eight out of the top-10 retailers use display ads, featured products and sponsored links to advertise goods and services to consumers on their online sites. But the UK is lagging behind, with only two of the top-10 retailers choosing to sell media space to third parties on their websites.

With an estimated 7.5 billion page views a month, British online retailers are among some of the most visited websites by consumers – however, digital media revenues from selling search, display and trade advertising amounted to less than £150 million for UK retail websites over the past year. By comparison, news websites made approximately £400 million in digital media revenues, despite receiving only 3 billion page views.

Anita Balchandani, Partner at OC&C, said: “Although the UK is one of the most advanced online retail markets in the world, British retailers are behind the curve when it comes to monetising shoppers as well as browsers on their website.

“This has been the case for a number of reasons. Firstly, e-retailers have been concerned that advertising on their websites could potentially deflect consumers away from their site. They have also been worried by the effects that promotional messages on their website may have on consumer perceptions of their brand. Finally, retailers have also expressed some operational concerns around internal accountability structures – for many retailers it is not clear who in the organisation would own this revenue stream.”

Notwithstanding OC&C’s research found that the presence of adverts on a retailer’s website had very little impact on consumers’ purchasing decisions. Only 3% of consumers referenced having no sponsored links as an important purchasing factor, ranking well behind value for money (56%), quality of products (43%) and free delivery (33%). In addition, Nielsen analysis of several US e-retailers revealed no significant changes in conversion rate after launching third party onsite advertising.

Cliff Hinrichs, Head of ecommerce partnerships at Google "At Google, we have always believed that relevant advertising adds to the user experience. In the case of ecommerce, targeted advertising is a helpful extension of a retailer’s offer, especially when that offer doesn’t match the user need. Ecommerce sites haven’t traditionally captured any value from ‘browsers’ – the 95% of users who visit an e-retailer but don’t buy anything. In addition, the remaining 3-5% of ‘shoppers’ are most interested in low prices. Capturing value from "browsers" to subsidise lower prices is already an established strategy among some internet ‘pure play’ retailers.

Anita Balchandani continued: “Digital advertising is a huge untapped source of revenues for e-retailers. This is a natural continuation of practices, such as supplier funding, that are common in bricks and mortar retail, as well as mechanisms such as product recommendations that are commonly deployed online. However, there is no one-size-fits-all solution for all everyone. There are a number of options available, ranging from less intrusive solution that redirect a retailer’s traffic to other areas of their websites, to more profit-led implementations that are typically funded by third parties and lead traffic offsite.”

“In practice, each retailer needs to find a model that’s right for them and implement it in the right way. Crucial to this is assigning a clear owner for media revenues who is empowered to take decisions, and who will help define the scale of the opportunity and how they want to deploy the advertising solution– whether by partnering with a third party provider or developing in-house capabilities. The team should also be responsible for ensuring that clear rules and regulations are defined for on-site advertising and that trials are run to make sure the model chosen works for the brand’s customers. Iteration is critical here – you won’t hit the right formula first time, but retailers need to start at a level that they are comfortable with, and work from there.”

To calculate how much your brand could benefit from digital advertising, try our online calculator.

 - ENDS -

The Creating Value From Every Visit report is available on request, contact:

Keelin McGrory: keelin.mcgrory@occstrategy.com

Methodology

Bottom up sizings using publicly available data and broker forecasts of some key players who are active in the market today – extrapolated forward to the rest of UK eRetail.  Triangulated with top down combining external estimates of eRetailer audience data and expert opinions and estimates from publicly available data on the likely penetration, clickthough rate and CPC for adverts on eRetail websites. Benchmarked by analogy of eRetail’s potential to other eCommerce industries’ digital ad sales today.